Four-Father

WCA Waste is Tom Fatjo, Jr.'s fourth waste startup in 53 years. Five years after taking the firm public, he now has it poised to establish a national market presence.

Tom Fatjo, Jr. founded WCA Waste Corp. in 2000 and took the company public in 2004. Today, the firm generates annual revenues of more than $200 million and serves 343,000 commercial, industrial and residential customers throughout Alabama, Arkansas, Colorado, Florida, Kansas, Missouri, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee and Texas.

What makes this remarkable is that WCA is the fourth successful waste company Fatjo has founded. He attributes his success to a consistent three-pronged strategy: own your own disposal capacity; use acquisitions to build dense collection routes; and use expert and veteran waste management talent.

An accountant by training, Fatjo was keeping the books for a couple of small waste firms operating in Houston in the early 1960s. He foresaw that the waste industry would change from small one- or two-truck firms hauling trash to a dump or incinerator. Soon, regulations would eliminate incinerators and require lined landfills to replace dumps.

Acting on his intuition, Fatjo bought a truck, found a partner — Louis Waters, a former security industry executive — and started a hauling company. In 1969, the company acquired the Browning Ferris Machinery Co., which made trucks and landfill equipment. Importantly, it was a public company capable of issuing stock and raising money.

For the next six years, Browning Ferris Industries Inc. (BFI), as the company was re-named, bought a small waste company virtually every week. BFI's acquisition strategy was to build large, cost-efficient operations in Houston, Memphis, Tenn., and Puerto Rico by buying adjacent companies and creating dense collection routes. The company also acquired 60 landfills, and Harry Phillips Sr. became chief operating officer (COO). Phillips, an expert waste manager, arrived with the acquisition of a group of companies in Memphis and supplied the waste industry expertise that neither Fatjo nor Waters possessed.

Fatjo left BFI in 1976 and spent a few years in the financial industry. The formula he left behind — disposal capacity, dense collection routes and expert management — powered BFI's growth for more than two decades. By 1999, when Allied Waste Industries Inc. (now Republic Services Inc.) purchased the company, BFI was generating several billion dollars in revenues every year.

Tom Fatjo, Jr. (Tom) and his son, Tom Fatjo, III (Tommy), employed a similar strategy in starting and building Republic Waste Industries. Michael DeGroote bought that firm in 1991. DeGroote's success led Waste Management founder and current head of Blockbuster Video Wayne Huizenga to invest $27 million in the company. Later Huizenga bought DeGroote out and renamed the company Republic Services Inc. Today it is the second largest waste company in the U.S.

For their next venture, the Fatjos founded TransAmerican Waste Industries Inc. Once again, Tom's tested waste strategy yielded success. The Fatjos sold TransAmerican to USA Waste in 1999.

Fourth Time Around

Tom, now one of the most experienced waste executives around, became chief executive officer (CEO) and chairman of the board. Tommy would serve as senior vice president, finance. Tommy began his career in 1990 handling investor relations for Republic Waste and between 1992 and 1998, he was vice president-treasurer of TransAmerican. With nearly 20 years of waste industry experience, he was well-equipped to help lead his father's latest venture.

Jerome M. Kruszka, a 35-year waste industry veteran, signed on as president and COO. Kruszka began his career with Waste Management. Between 1971 and 1996, he served as general manager, district manager and regional manager for northern California. From 1996 to 1998, he was president and COO with TransAmerican.

Charles A. Casalinova, a 25-year industry veteran, became senior vice president and chief financial officer. From 1981 to 1999, Casalinova worked his way up at Waste Management, starting as division controller and moving up to regional vice president/controller.

The leadership team in place, WCA Waste was barely up and running when Waste Management put 10 percent of its assets up for sale.

“They asked for several proposals. We made offers, and we got them all,” says Tom. “We expected to be a small private company for some time. Suddenly, we were a $150 million startup.”

The acquisition satisfied Tom's core strategic requirements: First, it had disposal capabilities — landfills — that could drive markets. The acquisition included 10 landfills and 10 transfer stations. The deal also included 12 waste collection operations, including routes in Arkansas, Kansas, Missouri, Nebraska, Oklahoma and Texas.

Second, WCA Waste was able to retain or install experienced managers in each of the acquired operations. “General management expertise is a key strategic point,” Tom says. “While many solid waste basics are the same, every market is different. So we rely on experienced local management.”

Having established disposal capabilities and experienced leadership in each market, WCA Waste pursued further acquisitions to address its third core strategy of building dense routes to minimize collection costs. “Over the next three years, we acquired six companies, including three tuck-in collection companies and three landfills,” says Tommy.

By 2004, the company owned 13 landfills, 10 transfer stations and 15 collection operations. Its internalization rate — the percentage of collected waste disposed of in company facilities — reached 71 percent in 2003, one of the highest internalization rates in the industry and a rate the company continues to achieve year in and year out.

In search of funds for more acquisitions, WCA Waste went public in June of 2004 and raised approximately $100 million. During its first year as a public company, the company acquired four collection firms, one landfill and one transfer station. The company ended 2005 with revenues of $73.5 million — 66 percent from collections, 28 percent from disposal and 6 percent from transfer operations.

Throughout this period, president and COO Kruszka worked to balance growth from acquisitions with internal growth from new business. Kruszka's sales organization is relatively unique. “We do it differently than others,” he says. “We have street sales, inside sales and call centers dedicated to commercial, roll off and residential. Most have all of these [waste sectors] in one operation. But I've found that some people are good at residential while others are good with commercial or industrial, and we want people to sell to their strengths.”

Internal Growth

The Houston region illustrates WCA Waste's internal growth strategy, Kruszka says. “As it happens [the city of] Houston handles its own residential collection and disposal. But in the broader Houston metro market, we sell to homeowners associations and municipal utility districts,” he says. “We also sell to commercial and industrial customers.”

Kruszka points sales teams at smaller suburban bedroom communities, especially those that want franchise operators for all of their waste needs. “We've been getting one or two of these per year,” he says. “For example, we just got Tomball, Texas, which is just north of Houston. We provide residential collections, recycling collections, roll off and commercial service. No other waste firm's trucks have business in Tomball.”

All of WCA Waste's regional Houston business is internalized when it comes to disposal, either by disposing of the trash at WCA Waste landfills or by agreeing to swap landfill tons with other landfill owners, a common practice that saves labor and fuel by enabling trucks to tip at the closest facility without compromising on internalization.

Growing Through Acquisitions

Small haulers in a region where WCA Waste owns disposal capabilities become acquisition targets, especially those that don't use the firm's transfer stations or landfills. “When we find a candidate, a regional vice president decides whether or not to make an offer,” Kruszka says. “When a deal closes, the acquired company might continue to operate independently as a tuck-in or consolidate operations in one of our existing offices.”

Unsurprisingly, acquisition activity stalled with the beginning of the recession. So far this year, the company has only logged one acquisition.

Typical of waste companies, WCA Waste saw recession-related business declines at construction and demolition landfills but has not suffered as much as firms in other sectors of the economy. “We spent time at the end of 2008 making sure that our credit facilities were in compliance with bank covenants,” Tommy says.

WCA Waste currently brings in about $200 million in revenues annually, with $54 million in EBITDA (earnings before income tax, depreciation and amortization). Tom says his firm has a strong balance sheet with $125 million in available credit.

“We are, right now, primarily a southern company, with a strong financial position,” Tom says. “We think the time is good to begin acquiring again. Many private companies today face challenges with bank credit facilities, and they want to partner up with a stronger company.

“We plan to take WCA Waste national within the next five years, and we're going to get started with acquisitions soon.”

After helming four start-ups that helped reshape the U.S. waste management industry, Tom Fatjo, Jr.'s creative instincts are still pushing the envelope.